Ordinary or doughnut economics?

12.6.2018 Blog Anni Huhtala

If the relationship between the environment and economy is problematic, euphemisms will not make a difference, Anni Huhtala writes.

Photo: Alejandro (Flickr, CC BY 2.0)

In recent decades, the environment has become a part of the vocabulary of economics in interesting ways. At times, economic growth has been referred to as sustainable and, at others, as green. Epithets have also been coined to specify the close connection between the economy and the natural environment: bioeconomy, green economy, blue economy, circular economy, etc.

The objective of all this is perhaps to build a more positive image of the connection between the economy and the environment, so that we would not only focus on the detrimental effects. OECD and the European Union, for example, have been active marketers of this image.

But if the relationship between the environment and the economy is problematic, euphemisms will not make a difference.

In recent discussions, economics itself has been seen as the problem. It is the fault of economics that environmental problems are not recognised.

In recent discussions, economics itself has been seen as the problem. It is the fault of economics that environmental problems are not recognised. According to some, economists themselves are to blame: they have designed the wrong kinds of abstract models – ones which cannot be understood and do not reflect the real world.

It is true that overspecialisation can take you by surprise. When that happens, I dig up an old clipping about the nature of economics, published in a student paper about 30 years ago:

"In certain models, the abstraction has been taken a step further, hypothesising that the economy has neither producers nor consumers, but only one commodity that floats in the otherwise empty space, unmoving."

This kind of tongue-in-cheek scenario of the end of humanity is usually only seen in student humour.

Either way, there is deep thinking behind the economic models: What in this world of humans and in the economy makes us act in ways that are harmful to the environment and nature? Can we fix it? How could policies help? How should international agreements be negotiated so that everyone would commit to protecting nature?

If the behaviour of humans, or entire nations, demonstrate signs of pursuing self-interest – even at the expense of others – this is hardly economists’ fault. If it is difficult for us to remember the consequences of our daily decisions and choices on future generations, dynamic intergenerational models may show us what kind of destruction uncontrolled behaviour may wreak in a market economy.

This is why the starting point of environmental policies is the idea that regulation can be used to restrict the actions of both citizens and companies, when necessary. It is the duty of an economist to think about how regulation can be implemented as efficiently as possible, while maximizing the good for society.

This is ordinary, boring economics. But not, of course, the new doughnut economics.